Why Aurinia Pharmaceuticals Could Be a Gold Mine for Growth Investors

Aurinia Pharmaceuticals Inc. (NASDAQ: AUPH) stock has already tripled this year, on renewed hopes of success for an experimental lupus treatment. Despite this year's big run-up, this clinical-stage biotech stock could still be a gold mine for growth investors.

Aurinia shares probably would have jumped much higher if a safety scare and mixed data for the company's lead candidate weren't weighing on investors' minds. Here's why that pessimism might be overblown.

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Ready for an upgrade

Each year more than 200,000 Americans are diagnosed with lupus. The chronic autoimmune disorder can affect nearly any organ, but roughly half of these patients are diagnosed with a form that often leads to kidney failure called lupus nephritis. Aurinia's developing voclosporin, to be the first treatment upgrade these patients have seen in decades.

Lupus nephritis patients are generally treated with steroids, but most require additional treatments to keep their immune system from destroying their kidneys. The most popular non-steroid suppressant is a drug the FDA approved decades ago to reduce rejection of transplanted organs, mycophenolate mofetil (MMF).

That's right. One of the most common lupus nephritis treatments isn't even approved for treating the disease. Physicians are clamoring for a better option, which is why Aurinia thinks its lead candidate could eventually generate more than $1 billion in sales each year.

A big improvement

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Cyclosporine is another powerful immune suppressant that can drive lupus nephritis into remission, but its use is limited to patients that have exhausted other options because it's toxic to kidney tissue. Aurinia's voclosporin swaps out one of the 11 amino acids that make up cyclosporine, and it looks as if that simple adjustment allows it to be effective at a lower dosage with fewer side effects.

During the midstage Aura trial, 33% of patients receiving 23.7 mg of voclosporin in addition to standard MMF experienced a complete remission at 24 weeks, versus just 19% of patients receiving MMF plus a placebo. That was good, but the data got even better at 48 weeks when the complete remission rate rose to 49%, versus just 24% for the group receiving MMF alone, plus all patients in complete remission at 24 weeks still weren't showing any signs of disease activity.

A nice price

The huge remission-rate improvement would make voclosporin's eventual applications seem like a slam dunk for approval, but there were some deeply disturbing issues that have kept Aurinia Pharmaceuticals stock from soaring. Among 256 lupus nephritis patients enrolled, 13 died during the Aura study. Also, there was a lower complete response rate among patients given a higher dosage of voclosporin.

Investors like to see responses rise with dosages because it suggests the experimental drug is actually driving the observed improvement. I think the benefit observed for both voclosporin doses at 48 weeks, though, was strong enough to allay those fears. As for the high number of patient deaths, investigators stated there wasn't any link to voclosporin. The claim has since been reinforced by the FDA, which allowed the company to begin a larger, late-stage study with voclosporin earlier this year.

Those fears have pressured Aurinia's market cap down to a sprightly $519 million at recent prices, which seems awfully low for a company with a good shot at eventually generating roughly $1 billion in sales each year with voclosporin as a treatment for lupus nephritis. Biotech stocks tend to trade at mid-single-digit multiples of annual revenue, which means this stock has long-term multibagger potential written all over it.

Putting it together

The late-stage Aurora trial with voclosporin in lupus nephritis is playing to the Aura study's strengths. Patients will receive MMF and the 22.7 mg dosage of voclosporin that did the trick earlier with a remission rate assessment at 52 weeks. Based on 48-week data from the Aura trial, a late-stage failure would be downright shocking.

There are no guarantees another safety scare won't derail voclosporin on its path to become a new lupus nephritis medication, but success in this indication could fund developing of voclosporin for additional uses that could boost its value even further.

Remember, voclosporin is similar to cyclosporine, a poorly tolerated drug that Novartis still markets under the Sandimmune and Neoral brands. Despite some generic competition, the branded franchise generated $515 million in sales for the Swiss pharma giant last year, mainly as a treatment to protect against transplanted-organ rejection.

Aurinia is aiming voclosporin at the lupus nephritis indication first because it represents a large unmet need. If successful, though, lupus revenue could fund development voclosporin for transplant recipients, and other autoimmune disorders as well. That makes this stock look like potential gold mine big enough to fill Scrooge McDuck's vault.

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